Housing bills on House floor, veto threat looms

RuthMantell

WASHINGTON (MarketWatch) -- Facing a veto threat, lawmakers in the House of Representatives are considering major housing legislation Wednesday that would modernize and expand the Federal Housing Administration, overhaul Fannie Mae and Freddie Mac, and provide funds to stabilize foreclosure-plagued neighborhoods.

At the debate's center is a provision that would see FHA backing as much as $300 billion in refinanced loans for homeowners facing foreclosure. President Bush opposes the FHA expansion, claiming that it would force taxpayers "to take on excessive risk."

There's also a veto threat against funding for state and local governments to redevelop abandoned and foreclosed homes.

"In addition to being extremely costly, this new program would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners," according to a statement of administration policy.

Lawmakers have support from Federal Reserve Chairman Ben Bernanke to find "ways to avoid preventable foreclosures." In a speech Monday, Bernanke said the "costs of foreclosure may extend well beyond those borne directly by the borrower and the lender." Read full story.

The housing legislation, spearheaded by House Financial Services Chairman Barney Frank, D-Mass., aims to alleviate, at least in part, the financial stresses from bad loans and the downturn in home values that have had widespread impact on the economy.

"Modernizing the FHA and reforming the GSEs will provide crucial liquidity to our mortgage markets now, and also strengthen regulation and oversight for the future," the committee said.

Late last week, the Congressional Budget Office estimated that the proposed FHA loan-guarantee program would insure about 500,000 loans from 2008 through 2013. A prior estimate from Frank had looked for a potential refinancing of 1 million to 2 million loans.

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